STRENGTHS

WEAKNESSES

Trading and economic reliance on Europe (tourism, construction)

Infrastructure weaknesses in some regions

Lack of skilled workers

RISK ASSESSMENT

Growth exposed to Brexit-related risks

The Mauritius economy, which is based around four key sectors (tourism, textiles, sugar, finance) is dominated by services (more than 70% of GDP). Despite diversification efforts aimed at attracting travellers from other countries, the island's economy is heavily reliant on that of European countries, the origin more than 60%of tourists, many of them French (more than 20%) and British (over 10%). Tourists arrivals (+3.6% in Q1 2017) are expected to slow compared to 2015 (+9.6%) and 2016 (+10.7%) in relations to moderate European and, in particular, British growth. As a consequence, activity in the services sector of the tourism industry looks set to be fairly flat. The construction sector, which contracted in 2016, is expected to keep weighing on growth in 2017.

The amendment of provisions in the double taxation agreement agreed with India in May 2016, increasing the tax Indian investors are liable to pay, might be a burden on investment flows, particularly in the financial sector. Exports (-6% in Q1 2017) are forecast to keep suffering from weak demand in the United Kingdom, limiting the contribution foreign trade makes to growth.

However, a relatively expansionary budget policy is expected to support economic activity by targeting key sectors in the framework of an economic diversification programme (Vision 2030). As a whole, growth is expected to remain stable in 2017.

Inflation should increase due to a rise in the price of imported oil and foodstuffs.

Budget and current account deficits widden

Budget policy is expected to be relatively expansionary to try to give a boost to the Mauritian economy. The State will likely intervene in the completion of infrastructure projects, particularly in the transport sector, and support the development of new sectors (film industry) as part of its economic diversification programme. This rise in spending will probably not be offset by a rise in tax receipts because the government has announced tax cuts, especially for companies, in the 2017 Budget. For instance, a tax on SMEs’ profits from exports of goods will be cut from 15% to 3%. Fiscal revenues are expected to modestly increase as growth remains stable. However, financial support, in particular from India (a notable USD 500 million credit line for instance), should help to finance some projects. The budget deficit will therefore probably rise a little, but remain under control. Public debt is expected to continue to rise, but the profile of the debt – mostly concessional – greatly reduces the risk of overindebtedness.

The current account balance is expected to deteriorate in 2017. Exports (textiles, sugar) should suffer due to modest British demand (12% of exports went to the UK in 2016) and a lack of competitiveness in the British market, with the fall in value of sterling. The prices of energy and food products, which form a large proportion of the island's imports, will probably not fall. Infrastructure projects will also require imports of capital goods.

Mauritius's financial system is robust and demonstrated its resilience after the collapse of the BAI group in 2015. Capitalisation is satisfactory, but the ratio of non-performing loans, although still quite low, is rising (8% in 2016 compared with 5% in 2015). The consequences of Brexit and the changes to the double taxation agreement with India could be a burden on the sector, but should not undermine its stability.

A new government weakened by several controversies

Mauritius Island is an established democracy. The parliamentary elections of December 2014 saw Sir Anerood Jugnauth (aged 86) return as Prime Minister, having previously occupied the same role in 1982-1995 and 2000-2003, and the role of President (2003-2012). Nevertheless, the three-party coalition he represents, Alliance Lepep, which had a comfortable majority in parliament before the Mauritian Social Democratic Party (PMSD) resigned from the government in December 2016, is, now, weakened. The following month, A. Jugnauth’s decision, even though legal, to step down to make way for his son Pravind infuriated the opposition and triggered several protests. The protest is all the more intense as the new Prime Minister has chosen to appoint his father as Minister of Defense. Acquitted in May 2016 in a case of conflict of interest, P. Jungnauth is once again threatened with legal action after the Supreme Court has given his consent to the Director of Public Prosecutions to challenge the acquittal. Although it should not threaten political stability, the weakening of the government is real and could slow down the implementation of reforms, yet necessary to achieve the goal of becoming a high-income country by 2023.

Mauritius enjoys effective governance and a favourable business climate. Its governance indicators are among the highest of Sub-Saharan African countries, according to the World Bank.